Oversight Framework

Payment Systems and Stored Value Facilities Ordinance

The Payment Systems and Stored Value Facilities Ordinance (Ordinance) establishes a statutory regime for the MA to designate and oversee clearing and settlement systems (CSSs). The objective is to promote the general safety and efficiency of designated CSSs. As the overseer, the MA monitors the compliance of designated CSSs with the safety and efficiency requirements stipulated in the Ordinance and, where appropriate, instigates changes to designated CSSs to bring them into compliance with the requirements.

The Ordinance also provides statutory backing to the finality of settlement for transactions made through the CSSs designated under the Ordinance by protecting the settlement finality from insolvency laws or any other laws. The MA is empowered to issue a certificate of finality to a designated CSS if it meets certain criteria specified in the Ordinance.

Exemptions Granted by the Monetary Authority

The MA has exempted the system operator (SO) or settlement institution (SI) of some designated CSSs from certain obligations imposed under the Ordinance or from the application of certain provisions of the Ordinance. Such exemptions are granted in accordance with the requirements set out in the Ordinance.

List of Exemptions Granted by the Monetary Authority under the Ordinance

Explanatory Notes and Guidelines

The MA is empowered to issue explanatory notes and guidelines to explain its role, policies and requirements in relation to the designation and oversight of CSSs under the Ordinance. To enhance the transparency of the designation and oversight functions of the MA, the HKMA has issued the Explanatory Note on Designation and Issuance of Certificate of Finality (the Note) which explains the policies and procedures that the MA intends to follow with respect to the designation of CSSs and the issuance of certificates of finality under the Ordinance. The Note also outlines the major obligations of a designated CSS, the power of the MA in respect thereof, and the appeal mechanism in respect of designation, revocation of designation and issuance, suspension, or revocation of certificates of finality.

The HKMA has also issued the Guideline on the Oversight Framework for Designated Clearing and Settlement Systems under section 54(1)(a) of the Ordinance which explains the MA's interpretation of the oversight requirements, including the safety and efficiency requirements under sections 7 and 8 of the Ordinance and the process that the MA intends to follow in his oversight of the CSSs designated under the Ordinance.

As regards the power to impose sanctions, the HKMA has issued the Guideline on Exercising Power to Order a Pecuniary Penalty under section 54(1E) of the Ordinance to set out the manner in which the power to order a pecuniary penalty under section 33Q(2)(a) of the Ordinance is to be exercised.

To date, the following systems were designated under the Ordinance, to which certificates of finality have been issued by the MA:

HKD CHATS (including the HKD FPS);
US Dollar Clearing House Automated Transfer System (USD CHATS);
Euro Clearing House Automated Transfer System (Euro CHATS);
Renminbi Clearing House Automated Transfer System (RMB CHATS) (including the RMB FPS);
Central Moneymarkets Unit (CMU); and
Continuous Linked Settlement System (CLS).

International Standards

The HKMA has committed to comply with the international regulatory standards on FMIs. Specifically, the HKMA adopts the Principles for Financial Market Infrastructures (PFMI) issued jointly by the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) in April 2012. The PFMI replace, harmonise and strengthen various earlier standards on FMIs, and aim at making the FMIs more resilient to financial crisis and fostering their safety and efficiency. The PFMI contain twenty-four principles for FMIs and five responsibilities of regulatory authorities to provide for the effective regulation, supervision and oversight of FMIs.

On 28 March 2013, the HKMA publicly announced its policy intention to adopt the PFMI, and the PFMI (including the twenty-four principles and the five responsibilities) came into effect on same day.

For FMIs under HKMA’s purview, the new requirements under the PFMI have been incorporated into the oversight guidelines issued by the HKMA, after consulting relevant parties. The HKMA published a separate guideline on Application of Principles for Financial Market Infrastructures to Designated Clearing and Settlement Systems under section 54(1)(a) of the Ordinance and revised the guideline on oversight of the trade repository (Guideline on the Oversight Framework for the Hong Kong Trade Repository). The two guidelines adopt the relevant requirements as specified in the PFMI and the additional note Application of Principles for Financial Market Infrastructures to central bank FMIs issued by CPMI-IOSCO. All FMIs under HKMA’s purview are required to observe the relevant PFMI applicable to them. The HKMA has also adopted the five responsibilities under the PFMI into its oversight framework.

The FMIs under HKMA’s purview are generally in compliance with the PFMI requirements since 31 December 2015, and are required to observe the relevant requirements in the PFMI on an ongoing basis. They are subject to PFMI assessment regularly by the HKMA. The outcome of the assessments will be published on the HKMA’s website.

Thematic Subjects related to FMI Oversight

Cyber Security

Amid more frequent and increasing sophistication of cyber-attacks in recent years, the HKMA attaches great importance to the cyber resilience of the FMIs under its purview. In this respect, FMIs are required to comply with the cyber resilience requirements stipulated by the HKMA and relevant international standards set by the CPMI of the BIS. Among others, the CPMI published the Guidance on cyber resilience for financial market infrastructures in June 2016 to enhance the ability of FMIs to pre-empt and respond to cyber attacks, and another report on “Reducing the risk of wholesale payment frauds related to endpoint security” in May 2018 to set out a strategy to mitigate endpoint security risk for the wholesale payment ecosystem. The strategy consists of seven elements and aims to address areas relevant to preventing, detecting, responding to and communicating about fraud. The HKMA will work with the FMIs under its purview to strengthen their cyber resilience and endpoint security taking into account developments in the cyber security space on an ongoing basis.

Resolution

Bank resolution refers to the orderly management of a failing bank in a manner that maintains the stability and effective working of the financial system of Hong Kong, including the continued performance of critical financial functions, while seeking to protect public money. This requires the failing bank to continue to have access to the critical services (e.g. clearing, payment, settlement and custody) provided by the FMIs when the bank is in resolution. To this end, the Financial Stability Board (FSB) published in July 2017 the Guidance on Continuity of Access to Financial Market Infrastructures (“FMIs”) for a Firm in Resolution to set out the relevant arrangements and safeguards that apply at the level of FMI service providers, FMI participants, FMI overseers and resolution authorities.

Being the FMI overseer, the HKMA works in concert with relevant stakeholders to meet the FSB’s requirements so as to facilitate the continuity of access to the FMIs by a participant of the designated CSSs in case of resolution. Relevant Hong Kong FMI scheme rules, including the Clearing house rules for HKD, USD, Euro and RMB CHATS as well as CMU member agreements and CMU reference manual, have been updated to ensure resolution is not an event of default provided that the applicable substantive obligations continue to be performed. Hong Kong Interbank Clearing Limited, as CHATS operator, has also published its response to the Financial Stability Board’s questionnaire on CoA to FMIs for firms in resolution.

Oversight of Faster Payment System in Hong Kong

The FPS is subject to the oversight of the HKMA. Since the FPS in Hong Kong went live on 17 September 2018, the PSSVFO provides statutory backing to the finality of settlement for transactions made through the HKD FPS (as part of the HKD CHATS) and RMB FPS (as part of the RMB CHATS) by protecting the settlement finality from insolvency laws or any other laws.

Given the FPS’ role as an important piece of FMI serving the retail segment with unique system features, the HKMA has formulated a new framework to oversee the FPS, which includes (i) oversight requirements currently applied to CHATS being CSSs; (ii) applicable PFMI; and (iii) drawing reference from relevant overseas experiences in overseeing faster payment systems.

The HKMA will keep in view the suitability and adequacy of the FPS oversight framework from time to time taking into account system behaviours, feedback from stakeholders, overseas developments, international guidance, etc., and consider fine-tuning the framework as appropriate.

Last revision date : 18 April 2024